Question 1

If a firm uses the direct method for reporting operating activities on the statement of cash flows, it must present a separate schedule which reconciles net income to net cash from operating activities.

Accepted Answer

This is true. When a firm uses the direct method for reporting operating activities, they must present a separate schedule which reconciles net income to net cash from operating activities. This is required by the Financial Accounting Standards Board.

Question 2

Use the following major cash flow activities to classify the activities listed below:
-Purchased land for cash

Accepted Answer

Purchasing land for cash is an investing activity that involves the use of cash.

Question 3

Use the following major cash flow activities to classify the activities listed below:
-Payment of Operating Expenses

Accepted Answer

Payment of operating expenses is a use of cash and falls under the operating activity category.

Question 4

Use the following major cash flow activities to classify the activities listed below:
-Paid off long-term debt

Accepted Answer

Paying off long-term debt is classified as a financing activity because it relates to the company's financial structure. It is considered a use of cash since cash is going out of the business to reduce the debt.

Question 5

For each of the following items, indicate by using the appropriate code letter, how the item should be reported in the statement of cash flows, using the indirect method.
-Decrease in accounts payable during a period.

Accepted Answer

A decrease in accounts payable represents a use of cash, as the company is paying off its obligations. Therefore, it should be deducted from net income in the operating activities section of the statement of cash flows using the indirect method.

Question 6

Use the following major cash flow activities to classify the activities listed below:
-Reported profitable operations (Net Income)

Accepted Answer

Reported profitable operations (Net Income) is a source of cash from operating activities as it indicates the company has generated revenue and profits from its core business operations.

Question 7

Use the following major cash flow activities to classify the activities listed below:
-Issued long-term debt

Accepted Answer

Issuing long-term debt is a financing activity and a source of cash as the company is receiving cash inflows from investors or lenders in exchange for the debt.

Question 8

Use the following major cash flow activities to classify the activities listed below:
-Issued Common Stock for cash

Accepted Answer

Issuing common stock brings in cash and is therefore classified as a financing activity and a source of cash.

Question 9

An advantage to using a worksheet to organize the information of preparation of the statement of cash flows is that it uses a spreadsheet format allowing the preparer to use a PC and spreadsheet software.

Accepted Answer

Using a worksheet in a spreadsheet format allows the preparer to easily use a PC and spreadsheet software to organize the information for the statement of cash flows.

Question 10

The direct method of reporting cash flows from operating activities involves reporting major classes of cash receipts and cash payments.

Accepted Answer

The direct method of reporting cash flows from operating activities involves reporting major classes of cash receipts and cash payments. This method provides a more detailed and transparent view of the company's cash flows from operating activities compared to the indirect method.

Question 11

For each of the following items, indicate by using the appropriate code letter, how the item should be reported in the statement of cash flows, using the indirect method.
-Declaration and payment of a cash dividend.

Accepted Answer

Cash dividends are considered financing activities, as they represent a distribution of profits to shareholders. Therefore, they should be reported as a cash outflow under financing activities.

Question 12

For each of the following items, indicate by using the appropriate code letter, how the item should be reported in the statement of cash flows, using the indirect method.
-Loss on sale of land.

Accepted Answer

A loss on the sale of land is added back to net income in the operating activities section when preparing the statement of cash flows using the indirect method, because it is a non-cash expense that reduced net income.

Question 13

A loss on the sale of equipment is subtracted from net income in determining net cash from operating activities under the indirect method.

Accepted Answer

A loss on the sale of equipment is added back to net income in determining net cash from operating activities under the indirect method.

Question 14

Use the following major cash flow activities to classify the activities listed below:
-Collection of Sales Revenue

Accepted Answer

Collection of sales revenue is an operating activity and a source of cash, as it contributes to the cash inflow of the company's core business operations.

Question 15

For each of the following items, indicate by using the appropriate code letter, how the item should be reported in the statement of cash flows, using the indirect method.
-Redemption of bonds for cash.

Accepted Answer

Redemption of bonds for cash is a payment made to the bondholders and therefore is a cash outflow of financing activity.

Question 16

For each of the following items, indicate by using the appropriate code letter, how the item should be reported in the statement of cash flows, using the indirect method.
-Decrease in accounts receivable during a period.

Accepted Answer

A decrease in accounts receivable during a period indicates that more cash has been collected from customers than the amount of sales recognized on an accrual basis. In the indirect method of preparing the statement of cash flows, this increase in cash is added to net income to adjust it from an accrual basis to a cash basis.

Question 17

Under the indirect method, the net cash flow from operating activities is computed by adjusting net income to remove the effect of all deferrals of past operating cash receipts and payments, and all accruals of future operating cash receipts or payments.

Accepted Answer

This is true. The indirect method uses adjustments to net income to arrive at the net cash flow from operating activities. These adjustments are made to remove the effects of non-cash items and changes in current assets and liabilities on the income statement.

Question 18

Use the following major cash flow activities to classify the activities listed below:
-Sold equipment used in the business for cash

Accepted Answer

Selling equipment used in the business for cash is an example of an investing activity that provides a source of cash.

Question 19

Use the following major cash flow activities to classify the activities listed below:
-Land is exchanged for common stock

Accepted Answer

Exchanging land for common stock does not involve cash flow; it is a non-cash transaction that falls under non-cash investing and financing activities.

Question 20

Use the following major cash flow activities to classify the activities listed below:
-Payment of cash dividends

Accepted Answer

Payment of cash dividends is a financing activity, as it involves distributing profits to shareholders. It is a use of cash because it decreases the company's cash balance.

Quiz 15: Statement of Cash Flows

If a firm uses the direct method for reporting operating activities on the statement of cash flows, it must present a separate schedule which reconciles net income to net cash from operating activities.

Use the following major cash flow activities to classify the activities listed below: -Purchased land for cash

Use the following major cash flow activities to classify the activities listed below: -Payment of Operating Expenses

Use the following major cash flow activities to classify the activities listed below: -Paid off long-term debt

For each of the following items, indicate by using the appropriate code letter, how the item should be reported in the statement of cash flows, using the indirect method. -Decrease in accounts payable during a period.

Use the following major cash flow activities to classify the activities listed below: -Reported profitable operations (Net Income)

Use the following major cash flow activities to classify the activities listed below: -Issued long-term debt

Use the following major cash flow activities to classify the activities listed below: -Issued Common Stock for cash

An advantage to using a worksheet to organize the information of preparation of the statement of cash flows is that it uses a spreadsheet format allowing the preparer to use a PC and spreadsheet software.

The direct method of reporting cash flows from operating activities involves reporting major classes of cash receipts and cash payments.

For each of the following items, indicate by using the appropriate code letter, how the item should be reported in the statement of cash flows, using the indirect method. -Declaration and payment of a cash dividend.

For each of the following items, indicate by using the appropriate code letter, how the item should be reported in the statement of cash flows, using the indirect method. -Loss on sale of land.

A loss on the sale of equipment is subtracted from net income in determining net cash from operating activities under the indirect method.

Use the following major cash flow activities to classify the activities listed below: -Collection of Sales Revenue

For each of the following items, indicate by using the appropriate code letter, how the item should be reported in the statement of cash flows, using the indirect method. -Redemption of bonds for cash.

For each of the following items, indicate by using the appropriate code letter, how the item should be reported in the statement of cash flows, using the indirect method. -Decrease in accounts receivable during a period.

Under the indirect method, the net cash flow from operating activities is computed by adjusting net income to remove the effect of all deferrals of past operating cash receipts and payments, and all accruals of future operating cash receipts or payments.

Use the following major cash flow activities to classify the activities listed below: -Sold equipment used in the business for cash

Use the following major cash flow activities to classify the activities listed below: -Land is exchanged for common stock

Use the following major cash flow activities to classify the activities listed below: -Payment of cash dividends